That is a somewhat general question but the fact is Sub2 will work in alot of different situations. Anytime a seller is motivated enough to leave financing in place where the numbers work whether you are planning to hold it or rehab and sell, sub2 is a viable option.
I have sub2ed pretty houses, junkers, you name it. If you intend to hold it, you should be able to cash flow on the spread each month as well as a payday on the backend.
If your intent is to rehab and sell, you should be getting sizable equity. Lots of times people selling junkers are willing to leave existing financing in place if they can get their cash now or soon.
I just learnt that if the property has a line of credit on it, the bank will always call the loans due. Z
P.S. I learnt it the easy way, not the hard way
Sub to is ideal if you intend to sell in less time than the bank is legally allowed to foreclose, and you are short on cash. There is a small negative, in that if the bank starts a foreclosure you have some legal fees that you would not otherwise need to pay.
It is not a realistic option if you plan to hold and make some type of commitment to someone else - eg lease the house - since you may not be able to hold up your end of that deal. In some situations if you do that you may be guilty of a crime (in california called rent skimming)
Thanks for the replys. I recently found a junker that sits on an awesome lot with a two car garage that's in way better shape than the house. Not on the market...just vacant. When I called the owner, she said she would love to sell it she would work with me any way she could. I ordered John's manual...shipped yesterday. Be here middle of the week. Will be doing my first sub to week after next.
And oh yeah...I plan to retail the property. It should go pretty fast. Comps are 110K, next door and across the street. I think I can pick it up at 50K. 10K Repairs.
Maybe another 5K holding costs, etc.
Plan to owner finance and take back 10-20% as a second.
If you buy subject to and then owner finance - ie sell it subject to that paper with an all inclusive or something like that, you are doing something that I would not do or advise. If somehow the underlying loan goes into foreclosure - for example due to the DOS clause, your buyers position is in jeaprody. I would fix it and sell it with new financing - getting 100% out. The subject to is for the interim period while you fix it up.
Quote:
On 2003-11-29 20:26, Zach wrote:
I just learnt that if the property has a line of credit on it, the bank will always call the loans due. Z
P.S. I learnt it the easy way, not the hard way <IMG SRC="images/forum/smilies/icon_biggrin.gif">
Zach, this is NOT true. The lender has the OPTION to call the loan due. However it rarely if ever happens if the loan is being paid as agreed.
Loanwizard. I know that's true for the first mortgage, but I was told that if there is a line of equity on the house in the previous owners name, the bank (or banks) would call both due so the preveious owner can't withdraw funds from the equity account anymore. Of course, they would still have to find out about it in the first place. Anyway, I don't know if it's true or not, but it was on those legrand cd's. It seems like something that would not vary from state to state - anyone have more info on this??? Z
I heard the same thing Zach from various sources. In any case, the lender has the RIGHT to call the loan due but I think they are more apt to do it with a HELOC....that is why you have the seller close the HELOC. And frankly, you want them to because the reverse is true, you are making the payments and the seller has free money. they can buy all the toys they want and you are making the payment.
I agree that you can make sub to work in most cases but here is a deal that came my way last week that I will most likely pass on. She is selling the home for 128,000 She owes 124,800 There is negative equity. I can deal with that but she is financed at 14% and her payments are $1185 a month. I would be lucky to get a $1050 a month L/O for the home.
If I would take the deal she would need 1. to bring about $5,000 to closing with me to cover her negative equity 2. pay me about $200 a month until my tenant/buyer refinances the home.
In my eyes a $200 a month payment is better than a $1185. She could downsize and get in a place for around $700 a month, pay me $200 and still save $285 a month!
Just out of curiosity, why would you not sell on an installment land contract rather than trying to L/O it (assuming the numbers worked out)?
This question is not so much specific to this deal, just the style of investing.
I know there are two different camps (ILC & L/O) on this and I want to be able to understand both sides--I am not trying to start a flame war[ Edited by Rogue on Date 12/06/2003 ]
That is a somewhat general question but the fact is Sub2 will work in alot of different situations. Anytime a seller is motivated enough to leave financing in place where the numbers work whether you are planning to hold it or rehab and sell, sub2 is a viable option.
I have sub2ed pretty houses, junkers, you name it. If you intend to hold it, you should be able to cash flow on the spread each month as well as a payday on the backend.
If your intent is to rehab and sell, you should be getting sizable equity. Lots of times people selling junkers are willing to leave existing financing in place if they can get their cash now or soon.
I just learnt that if the property has a line of credit on it, the bank will always call the loans due. Z
P.S. I learnt it the easy way, not the hard way
Sub to is ideal if you intend to sell in less time than the bank is legally allowed to foreclose, and you are short on cash. There is a small negative, in that if the bank starts a foreclosure you have some legal fees that you would not otherwise need to pay.
It is not a realistic option if you plan to hold and make some type of commitment to someone else - eg lease the house - since you may not be able to hold up your end of that deal. In some situations if you do that you may be guilty of a crime (in california called rent skimming)
Thanks for the replys. I recently found a junker that sits on an awesome lot with a two car garage that's in way better shape than the house. Not on the market...just vacant. When I called the owner, she said she would love to sell it she would work with me any way she could. I ordered John's manual...shipped yesterday. Be here middle of the week. Will be doing my first sub to week after next.
And oh yeah...I plan to retail the property. It should go pretty fast. Comps are 110K, next door and across the street. I think I can pick it up at 50K. 10K Repairs.
Maybe another 5K holding costs, etc.
Plan to owner finance and take back 10-20% as a second.
If you buy subject to and then owner finance - ie sell it subject to that paper with an all inclusive or something like that, you are doing something that I would not do or advise. If somehow the underlying loan goes into foreclosure - for example due to the DOS clause, your buyers position is in jeaprody. I would fix it and sell it with new financing - getting 100% out. The subject to is for the interim period while you fix it up.
Quote:
On 2003-11-29 20:26, Zach wrote:
I just learnt that if the property has a line of credit on it, the bank will always call the loans due. Z
P.S. I learnt it the easy way, not the hard way <IMG SRC="images/forum/smilies/icon_biggrin.gif">
Zach, this is NOT true. The lender has the OPTION to call the loan due. However it rarely if ever happens if the loan is being paid as agreed.
God Luck,
Shawn(OH)
Loanwizard. I know that's true for the first mortgage, but I was told that if there is a line of equity on the house in the previous owners name, the bank (or banks) would call both due so the preveious owner can't withdraw funds from the equity account anymore. Of course, they would still have to find out about it in the first place. Anyway, I don't know if it's true or not, but it was on those legrand cd's. It seems like something that would not vary from state to state - anyone have more info on this??? Z
I heard the same thing Zach from various sources. In any case, the lender has the RIGHT to call the loan due but I think they are more apt to do it with a HELOC....that is why you have the seller close the HELOC. And frankly, you want them to because the reverse is true, you are making the payments and the seller has free money. they can buy all the toys they want and you are making the payment.
I agree with you Zach and I heard that on LeGrand's course as well....Cash has also said it.
I agree that you can make sub to work in most cases but here is a deal that came my way last week that I will most likely pass on. She is selling the home for 128,000 She owes 124,800 There is negative equity. I can deal with that but she is financed at 14% and her payments are $1185 a month. I would be lucky to get a $1050 a month L/O for the home.
If I would take the deal she would need 1. to bring about $5,000 to closing with me to cover her negative equity 2. pay me about $200 a month until my tenant/buyer refinances the home.
In my eyes a $200 a month payment is better than a $1185. She could downsize and get in a place for around $700 a month, pay me $200 and still save $285 a month!
14% does seem high for an owner/occupant
Just out of curiosity, why would you not sell on an installment land contract rather than trying to L/O it (assuming the numbers worked out)?
This question is not so much specific to this deal, just the style of investing.
I know there are two different camps (ILC & L/O) on this and I want to be able to understand both sides--I am not trying to start a flame war[ Edited by Rogue on Date 12/06/2003 ]
To be honest I am a little wet behind the ears on how to do a L/I on this type of deal.. If you have any suggestions, send me a private message!
Thanks
Rob